spraying michael bender nathan allen steven myers december 4, 2007 ag ec 495
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Spraying Spraying
Michael BenderMichael Bender
Nathan Allen Nathan Allen
Steven MyersSteven Myers
December 4, 2007December 4, 2007
Ag Ec 495
OverviewOverview
IntroductionIntroduction Operations AnalysisOperations Analysis Human ResourcesHuman Resources Marketing AnalysisMarketing Analysis Financial AnalysisFinancial Analysis
Introduction Introduction
What is Vegetation Control?What is Vegetation Control? Custom spraying service provided to oil and Custom spraying service provided to oil and
gas industrygas industry Goals and objectives are to focus on Goals and objectives are to focus on
customer service, environmental stewardship, customer service, environmental stewardship, and quality workmanshipand quality workmanship
Headquarters in AlbertaHeadquarters in Alberta
Operations PlanOperations Plan
Organizational Structure Organizational Structure will be a private corporationwill be a private corporation
Five people on board of advisorsFive people on board of advisors
Manager (president) will be in charge of both Manager (president) will be in charge of both dutiesduties
Service staff will consist of two spray truck drivers Service staff will consist of two spray truck drivers as well as a secretaryas well as a secretary
Company will employ four people to start withCompany will employ four people to start with
Site plan located in AlbertaSite plan located in Alberta
Breakdown of Spray UnitBreakdown of Spray Unit
Options and features Capacities Cost of Purchase Importance of GPS and Mapping
Capital BudgetCapital Budget
Description Cost ($)
Building Costs $ 4,449
Equipment Costs $ 42,034
Total Working Capital $ 6,359
Total Land and Equipment Costs $ 46,483
Total Capital Required $ 52,842
Cost of Goods SoldCost of Goods Sold
DescriptionDescription Cost ($)Cost ($)
Beginning InventoryBeginning Inventory ++ - -
Costs of Goods ManufacturedCosts of Goods Manufactured ++$208,276$208,276
Costs of Goods AvailableCosts of Goods Available$208,276$208,276
Ending InventoryEnding Inventory -- - -
Cost of Goods SoldCost of Goods Sold$208,276$208,276
Overhead CostsOverhead Costs
Variable Overhead Costs Cost ($)
Truck Maintenance 7,000
Total Variable Costs 7,000
Fixed Overhead Costs
Lease on Building 2,000
Vehicle Insurance 1,600
Cell Phones 1,600
Capital Cost Allowance 5,926
Total Fixed Costs 11,126
Total Overhead Costs 18,126
Direct MaterialsDirect Materials
Direct Materials Cost ($)
Fuel 43,148
Chemical 66,120
WaterWater 350350
Meals and Accommodations 13,63213,632
Personal Protective Gear 1,950
Total 125,200
Direct LabourDirect Labour
Labour Costs Rate Cost ($)
Total Direct Labour $20/hr* 56,321
Benefits
Employment Insurance 1.87% 1,053
Canada Pension Plan 4.53% 2,551
Holiday Pay 5.80% 3,267
Workers Compenasation 3.12% 1,757
Total Direct Labour and Benefits $64,949
*Assuming 60 hour weeks with 20 hours per week of 1.5 time wage
Cash ManagementCash Management
Little cash on hand due to accounts payable Little cash on hand due to accounts payable coming due before accounts receivablecoming due before accounts receivable
Have to plan in the case of receivables not Have to plan in the case of receivables not getting paidgetting paid
Line of credit may be essential to cover cash Line of credit may be essential to cover cash shortfall during startup phaseshortfall during startup phase
Inventory ManagementInventory Management
Inventory on hand will be chemicals that are Inventory on hand will be chemicals that are needed for the week along with extra safety needed for the week along with extra safety supplies that will be neededsupplies that will be needed
How we determined a week’s inventory How we determined a week’s inventory .5 acres per site.5 acres per site.4 L Glyphosate + 1L of Dicamba.4 L Glyphosate + 1L of Dicamba150 sites sprayed per week150 sites sprayed per weekResulting in an inventory of 30L glyphosate, and Resulting in an inventory of 30L glyphosate, and
75L of dicamba75L of dicamba
Inventory ManagementInventory Management
Easy access to herbicides that are being used will help to keep inventory to a minimal
Keep herbicide on truck that will be used for the week
Inventory turnover will be within a week as product will be used up at this rate
Accounts PayableAccounts Payable
Managed to avoid paying interestManaged to avoid paying interest Credit Card used to purchase herbicides Credit Card used to purchase herbicides
and safety supplies, meals and hotel and safety supplies, meals and hotel accommodations accommodations
Fleet Card for purchase of fuelFleet Card for purchase of fuel These payables will be due within 30 daysThese payables will be due within 30 days Challenge to obtain enough credit during Challenge to obtain enough credit during
start upstart up
Human ResourcesHuman Resources
Job Descriptions Job Descriptions Manager (president)Manager (president)
Will oversee the business Will oversee the business Hire seasonal staffHire seasonal staff Daily tasks include, organizing inventory, Daily tasks include, organizing inventory,
planning daily activities of the spray trucks, as planning daily activities of the spray trucks, as well as keeping in contact with clients as well well as keeping in contact with clients as well as suppliersas suppliers
Salary will be $4500 per month Salary will be $4500 per month
Human ResourcesHuman Resources
Job Descriptions Job Descriptions Spray truck driversSpray truck drivers
Duties include traveling to oil and gas sites that will Duties include traveling to oil and gas sites that will be sprayedbe sprayed
Carrying out the task of spraying, as well as mixing Carrying out the task of spraying, as well as mixing chemicalschemicals
Record keeping that will be requiredRecord keeping that will be required Wage will be $20 per hour and time and a half for Wage will be $20 per hour and time and a half for
overtime overtime
Human ResourcesHuman Resources
Job DescriptionsJob Descriptions Secretary Secretary
Will work part time approx. 20 hours per weekWill work part time approx. 20 hours per week Duties will be taking calls, organizing Duties will be taking calls, organizing
meetings, book keeping, invoicing and billingmeetings, book keeping, invoicing and billing Wages will be paid hourly at a rate of $12 per Wages will be paid hourly at a rate of $12 per
hour hour
Marketing PlanMarketing Plan
The 4 P’sThe 4 P’s
Products and ServicesProducts and Services Custom Spraying ServiceCustom Spraying Service
Vegetation control in industrial situations such Vegetation control in industrial situations such as oil and gas wellsas oil and gas wells
Site evaluation to access the product that Site evaluation to access the product that needs to be appliedneeds to be applied
Safety orientatedSafety orientated specializes in spraying and focuses on qualityspecializes in spraying and focuses on quality
The 4 P’sThe 4 P’s
PricePrice Competitive PricingCompetitive Pricing
Many established competitors in businessMany established competitors in business All vegetation control has relatively similar All vegetation control has relatively similar
strategy (no differentiation)strategy (no differentiation) Price that will be charged is $80 per sitePrice that will be charged is $80 per site Chemical price will be $68.88 per acreChemical price will be $68.88 per acre
The 4 P’sThe 4 P’s
PromotionPromotion Trade showsTrade shows
Make initial contact with potential clientsMake initial contact with potential clients Show case servicesShow case services Emphasize high quality service, attention to detail and focusEmphasize high quality service, attention to detail and focus
Signage on trucksSignage on trucks Mode to “get name out”Mode to “get name out” Visual images often stick with peopleVisual images often stick with people Trucks cover large area during spraying seasonTrucks cover large area during spraying season
Pamphlets with literature on services providedPamphlets with literature on services provided Breakdown of services providedBreakdown of services provided Position o as a higher quality service provider in comparison to Position o as a higher quality service provider in comparison to
competitorscompetitors
The 4 P’sThe 4 P’sPlace will target oil and gas sites in Alberta Geographic factors will limit the area that
can service Strive to keep resources efficient and effective
SWOT AnalysisSWOT Analysis
Human Resources-Strengths Strong Management Skills
Hired employee's don’t need extensive training Work is relatively basic Day to day actions repetitive
Management has key contacts in Agricultural and Oil and Gas Industry Useful resources Opens doors to new possibilities
Few employees
SWOT AnalysisSWOT Analysis
Human Resources-WeaknessesHuman Resources-Weaknesses Few employee’s Few employee’s
Short staffedShort staffed Services may be restrictedServices may be restricted
Management has little knowledge in accountingManagement has little knowledge in accounting Outsource accounting Outsource accounting
Working long hoursWorking long hours Worker fatigue and stressWorker fatigue and stress Possible liabilityPossible liability
Possible lack of safety personnel Possible lack of safety personnel
SWOT AnalysisSWOT Analysis
Physical Resources-StrengthsPhysical Resources-StrengthsMajority of equipment brand newMajority of equipment brand new Little down time for maintenanceLittle down time for maintenance Increase efficiency Increase efficiency
Precise and user-friendly spraying equipmentPrecise and user-friendly spraying equipment Increase efficacy Increase efficacy
GPS and mapping technologyGPS and mapping technology Can be used in disputesCan be used in disputes
SWOT AnalysisSWOT Analysis
Physical Resources-Weaknesses Using previously owned trucks
Higher repair costsMay lead to increased downtimeMay need to upgrade in near future
External Threats and OpportunitiesExternal Threats and Opportunities
Opportunities Oil and Gas sector growing (market trends)
Alberta- growing and established Saskatchewan- low establishment of oil sites
Huge potential for market boom New products/Services
implement mowing service as well Customers are looking for ways to reduce costs and hassle ATV mounted sprayers
Customers Commercial buildings and other industrial sites
Government policy change Any changes made to oil industry will impact markets
External Threats and OpportunitiesExternal Threats and Opportunities
External ThreatsExternal Threats CustomersCustomers
Larger base customers may desire services out of our region Larger base customers may desire services out of our region Becoming selective of who is hiredBecoming selective of who is hired
Government policy change and competitionGovernment policy change and competition Alberta government raised royalties/this may slow down oil productionAlberta government raised royalties/this may slow down oil production Saskatchewan- Sask. Party winning electionSaskatchewan- Sask. Party winning election
Party platfom/ different ideasParty platfom/ different ideas CompetitionCompetition
Many well established companiesMany well established companies Largest threat 12 large companiesLargest threat 12 large companies
Approx. 20 provincial competitorsApprox. 20 provincial competitors Environmental ThreatsEnvironmental Threats
Temperature, wind speed, precipitation affects agrochemicalsTemperature, wind speed, precipitation affects agrochemicals
CompetitionCompetition Major CompetitorsMajor Competitors
West Country Oilfield ServicesWest Country Oilfield Services Ace VegetationAce Vegetation Precision Oilfield ServicesPrecision Oilfield Services Spray-Rite Vegetation Control Inc.Spray-Rite Vegetation Control Inc. DDK Oilsite ServicesDDK Oilsite Services Weed WackersWeed Wackers All Pro Vegetation ManagementAll Pro Vegetation Management Precision Vegetation ControlPrecision Vegetation Control Altec Vegetation Management Altec Vegetation Management
Corp.Corp. TMT Vegetation Management Ltd.TMT Vegetation Management Ltd. Cunningham Vegetation Cunningham Vegetation
Management Management Site Rite Vegetation ManagementSite Rite Vegetation Management
Minor CompetitorsMinor Competitors Clarke Vegetation ControlClarke Vegetation Control Vanguard Vegetation ControlVanguard Vegetation Control Excel Vegetation ServicesExcel Vegetation Services Ace Vegetation Control ServiceAce Vegetation Control Service Blueweed ServicesBlueweed Services SPS Well ServiceSPS Well Service Target Vegetation Control Ltd.Target Vegetation Control Ltd.
Taber
Major Competitors
Minor Competitors
Advertising
Brochures/Business Cards/Flyers $ 1,250
Truck Decals $ 900
Total Advertising $ 2,150
Promotion
Web Page $ 3,000
Travel Expenses $ 5,250
Cell Phones $ 1,600
Trade Shows $ 5,000
Total Promotion $ 14,850
Development
Insurances (Spray and App. License) $ 6,000
Insurances (Certificate of Recognition) $ 600
Insurances (Corporate Start Up Fee) $ 5,000
Insurances (Business License) $ 500
Human Resources Training Costs $ 1,000
Utilities Expense $ 6,000
Total Development $ 19,100
Total Marketing Expenses $ 36,100
Marketing Plan Budget Marketing Plan Budget
Financial PlanFinancial Plan
Critical VariablesCritical Variables
Critical Variables Base Case Allowable Change %
Wages 24.45 27.00%
Number of Sales 2,400.00 -8.74%
Fuel 43,184.00 15.86%
Selling Price 80.00 -4.45%
Chemical Sold 1,200.00 -22.95%
Chemical Price 68.88 -10.95%
Financial Feasibility Financial Feasibility Year 2008 2009 2010 2011 2012
Sales $ 274,650.00 $ 280,143.00 $ 285,745.86 $ 291,460.78 $ 297,289.99
Cost of Sales 208,275.72 216,635.64 217,993.09 220,212.46 223,071.12
Gross Margin 66,374.28 63,507.36 67,752.77 71,248.31 74,218.87
Expenses 60,241.89 61,446.73 62,675.66 63,929.17 65,207.76
Net Income (Loss) Before Tax $6,132.40 $2,060.64 $5,077.11 $7,319.14 $9,011.12
Income Tax 613.24 206.06 507.71 731.91 901.11
Net Income (Loss) After Tax $5,519.16 $1,854.57 $4,569.40 $6,587.23 $8,110.00
Net Cash Flow to Equity $ 5,519.16 $2,415.22 $(4,851.81) $(10,040.22) $(13,727.31)
Year 2013 2014 2015 2016 2017
Sales $ 303,235.79 $ 309,300.51 $ 315,486.52 $ 321,796.25 $ 328,232.17
Cost of Sales 226,411.91 230,123.92 234,128.86 238,371.55 242,813.18
Gross Margin 76,823.88 79,176.59 81,357.66 83,424.70 85,418.99
Expenses 66,511.91 67,842.15 69,198.99 70,582.97 71,994.63
Net Income (Loss) Before Tax $10,311.97 $11,334.44 $12,158.67 $12,841.72 $13,424.36
Income Tax 1,031.20 1,133.44 1,215.87 1,284.17 1,342.44
Net Income (Loss) After Tax $9,280.77 $10,201.00 $10,942.80 $11,557.55 $12,081.92
Net Cash Flow to Equity $ (16,325.02) $ (18,128.01) $ (19,347.65) $ (20,136.04) $ (20,602.99)
Breakeven AnalysisBreakeven Analysis
70.00
75.00
80.00
85.00
90.00
95.00
100.00
1 2 3 4 5 6 7 8 9 10
Years
Selli
ng P
rice
($) Cash Flow
Net Income
Economic
Base
Scenario AnalysisScenario Analysis
Risk Analysis
Variable Worst Case
(-10%)Base Case
Best Case (10%)
Number of Sales 2160 2400 2640
Average Price 72 80 88
IRR -41.83 19.60% 75.40%
NPV -128,479 -673 117,463
Two critical variables used (10%) change
IRR and NPV are extremely sensitive to change
ConclusionConclusion
Over the next ten years NewCo is Over the next ten years NewCo is projected to have a Internal Rate of Return projected to have a Internal Rate of Return (IRR) of 19.6%(IRR) of 19.6%
NewCo will prove to be a feasible NewCo will prove to be a feasible business if sales objectives can be metbusiness if sales objectives can be met
Focusing on new customer relationships Focusing on new customer relationships will be important to the success of the will be important to the success of the companycompany
QuestionsQuestions
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